Daily Flog: White House on its knees, the rest of us on our backs, Wall Street zipping up

September 26, 2008

[Yesterday] began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

“If money isn’t loosened up, this sucker could go down,” President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.

Not since the Clinton Administration has it been widely reported that people were on their knees in the White House and that a president talked about a sucker going down.

And this time it’s a Treasury secretary on his knees, not just an intern. This is some serious shit.

Or not. McClatchy’s Kevin G. Hall, who constantly snoops for fresh angles and comes up with solid material, writes in “Is the bailout needed? Many economists say ‘no’ “:

“It’s more hype than real risk,” said James K. Galbraith, a University of Texas economist and son of the late economic historian John Kenneth Galbraith. “A nasty recession is possible, but the bailout will not cure that. So it’s mainly relevant to the financial industry.”

The Paulson plan will get some bad assets off the balance sheets of troubled Wall Street institutions and commercial banks. That may help thaw the lending freeze.

But it wouldn’t reduce the crush of homes in or near foreclosure, said Simon Johnson, a professor at the Massachusetts Institute of Technology. That’s a problem that will surely grow worse if the U.S. economy enters recession, leading to greater job losses, which feed a vicious downward spiral of even more foreclosures and defaults on car loans and credit-card debt.

What? A story in the national press about the plight of the rest of us? How dare he!

John McCain‘s own September surprise isn’t working out too well, as another McClatchy story points out. In “McCain gets blamed for angry end to Bush’s bailout meeting,” David Lightman and Margaret Talev write:

“What this looked like to me was a rescue plan for John McCain,” said Senate Banking Committee Chairman Christopher Dodd of the Republican objections.

His reference was to McCain’s eleventh-hour intervention in the negotiations, when he declared he was suspending his campaign and postponing Friday night’s debate with Democrat Barack Obama to help negotiate a bailout plan.

Democrats think that Republicans were backing away from a compromise many of them agreed to earlier Thursday — without McCain’s involvement — in order to give McCain time to play a role and perhaps appear as a rescuer.

Republicans, in contrast, said their reservations on the bailout plan were principled. The plan, they said, had too much government involvement in private industry and too high potential liabilities for taxpayers.

Yes, “principled.” Buy or sell? Sell.

No question that the month has been tough on McCain, but just think about those poor mid-level banker types on Wall Street, which is just a little more than a stone’s throw from my office. (If I had an arm like Rocky Colavito‘s and a bag of stones, I’d take the subway down there and start hurling, instead of just hurling over my latest bank statement.)

Morgan Stanley and Goldman Sachs are delaying their decisions about year-end bonuses as they struggle with the financial crisis.

The US investment banks have traditionally set the bar for European and American competitors because their fiscal years end earlier. But the two, which have been forced to seek regulated retail bank status, are putting off their October meetings on bonuses until they have greater clarity about the fourth quarter.

[B]anks have warned that bonus pools will be cut sharply and that top performers will get the bulk of the money. “A falling tide lowers all boats but some people will end up above the river on stilts,” said one bank executive.

Well, we appreciate that news from the other side of the pond that at least we won’t all drown. I’m certainly looking forward to my own bonus. I hope those bananas at the Astor Place kiosk are still only 35 cents apiece.

And here’s a September surprise, again courtesy of the FT, whose Cash for Crash coverage rocks and is free for the viewing. In “Hedge fund chief warns on wrongdoing,”Gillian Tett and James Mackintosh report a frank admission from a financial-world insider:

Investigators and regulators are likely to uncover significant evidence of wrongdoing when they examine the records of some of the financial companies that have failed, a leading short-selling hedge fund manager claimed.

Jim Chanos, head of Kynikos Associates, believes that some of the public statements that emerged from some of the best-known financial groups could have been seriously misleading.

“I do think that what we are going to find out, when regulators and law enforcement people get into some of these firms which have failed, was that . . . the statements which people were making were materially misleading, if not criminal,” he said in a video interview on FT.com. “It is going to shock people…the extent of the deception to the market.”

Chanos is of course saying this as a defense of short-selling, setting up the argument you’ll hear in the coming years that there’s a big difference between conniving and illegal conniving.

And here’s something else in this FT story that comes as absolutely no surprise:

Lawyers in both the US and London are considering lawsuits, many of which are likely to revolve around the extent to which bank executives knew about risks in their businesses.

Weary of skipping around the web? Do some one-site shopping this morning. Here’s a clump of readable FT stories that you could skim through and try to choke down over your third cup of coffee — remember to take small bites and chew thoroughly unless you want to spit up hairballs later in the day: